It has taken a long time for this to happen, as the business model is still solid. Contracts guarantee a high level of recurring revenues and one could say that this industry invented the subscription economy.
These circumstances create a scenario where Private Equity can introduce its savoir-faire in terms of restructuring and redeploying companies. In a mature industry, with little prospect of growth, but where the best companies still enjoy superior levels of profitability, money can be made by consolidating around best practice.
The most visible part of this market hitting the headlines is the manufacturers, where several large deals have been struck in the last two years. Lexmark, a US company was sold to Chinese interests at a significantly higher price than expected. Sharp was acquired by Foxconn, mainly for its screens and consumer electronics business, but to the surprise of many, the new owners have so far shown no sign of disposing of the print business – maybe because it is a profitable cash cow. The Xerox – Fuji deal hit the headlines because of its high profile investors and the corporate fight that is taking place. This only happens when there is money around.
As a consultant group we operate internationally. We have examples of significant deals taking place in Germany, in the UK and in France to name the three biggest markets. Our partners in other countries than France regularly talk to Private Equity companies.
The UK, which tends to be heading the rest of Europe by eighteen to twenty-four months, has seen many movements in its channel.
Consolidation with a company like Apogee on an on-going acquisition trail with Danwood (Annual Revenue £105M), Balreed Digitec (£38M),Printware (£10M) and Xact Document Solutions (£8M). As we write, M2 announced the acquisition of Hobs On-Site.
If we consider France, there has been a series of acquisitions taking place in recent years. Just in the first four months of 2018, C-Pro (170 M€ revenues), a specialist in acquisitions, (its 47th!), announced a merger with Quadria (120 M€ revenues). Everteam, a Software company, took a controlling stake in Spigraph (100M€ revenues).
Manufacturers play a role in France as well, with Konica Minolta continuing on the acquisition trail, with OMR Dactyl (70M€ revenues) in 2017 and Numerial (2M€ revenues) in 2018. And likewise the list expands further.
There are quite a number of (200+) distribution companies in the range of 20 to 60 million revenues that operate in France and we think there is opportunity for Private Equity to operate in this market.
However, there are some hurdles. The UK shows that solid diligence must be executed to understand the real recurrent financial streams associated with the contract quality, the cost of delivering promised services and the effective sales coverage and account potential.
This article was written on 05 Jun 2018, and is filled under Point of View.
Capture, FUJI, Konica-Minolta, Kyocera, lexmark, M2, Midshire, opportunities, private equity, sharp, xerox